Six Numbers Showing Detroit’s Pension Problems
Retiree costs are still crowding out services
Cities across Michigan and the nation are struggling to pay out their promised pensions. Retiree liabilities were a root cause of Detroit's bankruptcy before a grand bargain trimmed benefits and required the city to set its pensions on a path toward solvency.
Here are six numbers that explain the pension problems in Michigan’s largest city and what is being done going forward.
1. Nine Years – That’s how long Detroit could fund its entire transportation system with the money it will spend on its pension bankruptcy settlement.
According to Detroit’s 2015 audit, transportation costs the city $100 million per year. Detroit’s pension settlement will cost $979 million through 2023. This money could also fund the city’s water system for three years or sewage for 2 1/2 years.
2. $195 million – That’s how much Michigan taxpayers paid to bail out Detroit’s pension system.
Taxpayers took a hit for Detroit’s failed pension system. Detroit isn’t alone, though, as lots of cities around Michigan haven’t been putting away enough money. Flint has had an emergency manager put in place six times since 2002, but its pension system remains at only 47 percent funded with a $285 million liability.
3. $1.33 billion – That’s the amount Detroit cut from retirees pensions during bankruptcy.
Michigan’s Constitution protects government pensions as contractual rights, but in federal bankruptcy court, those contracts can be amended. Detroit promised to invest its employees’ money and pay them benefits when they retired.
During bankruptcy, Detroit also eliminated $200 million of required contributions.
The city was forced to cut the police and fire retirement system’s cost-of-living adjustments by 55 percent. Detroit also eliminated general employee cost-of-living adjustments and cut benefits by 4.5 percent.
4. $1.59 billion – That’s how much Detroit’s pension system is still underfunded.
Before bankruptcy, Detroit’s unfunded liability was close to $2.92 billion. After the elimination of $1.33 billion from settlements described above, the city still owes $1.6 billion more to retirees than it has set aside to pay. Detroit’s audit said the city hopes to have the pension system 75 percent funded by 2023.
But the city is on a better path. Detroit employees no longer earn benefits under the terms of its old system. They are now offered benefits through a hybrid pension system, which offers less generous benefits when the system is underfunded.
5. $5.7 billion – That’s the how much Detroit cut employees' other post-employment benefits (OPEB).
OPEBs do not receive the same constitutional protections as pensions, so Detroit more easily cut them.
6. 129 – That’s the number of full-time uniformed police Detroit has lost since the 2013 bankruptcy and pension crisis.
The city had 2,389 full-time uniformed police employees in June 2013 but is down to 2,260 today. The fire department has lost 100 employees and public works has declined by 209 workers; health, transportation and education programs also lost people.
When cities don’t put aside enough money to pay for pensions, the costs skyrocket. In city after city, at the state level, and in the public schools, pension costs are crowding out public services. The state and local governments should be shifting new employees off pensions and onto 401(k) plans to prevent liabilities in the future.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.